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Brexit

We know that the people of the UK voted to leave the EU on 23 June 2016. What is less clear is what comes next. The below publications examine the possible effects of Brexit on your business and how Walker Morris can help.

Introduction

In June 2016, the UK voted to leave the European Union in a referendum. The exiting process was then initiated by an article 50 declaration by the UK government in March 2017. The UK now has 2 years within which to negotiate its exit. The negotiations will be complex and wide ranging due to over 40 years’ worth of legislation and related guidance needing to be considered. There are a variety of issues that need to be resolved including whether the UK remains in the single market, has membership of the customs union, whether the free movement of labour will continue, and how EU law will be adapted to apply domestically.

Of particular interest is the impact of this decision on the public sector, one of the sectors most highly regulated by European law. According to the Office for National Statistics the public sector employs 17.1% of the national workforce including teachers, doctors, police officers, and public administrators. With such a large sector, the potential impact of changes resulting from Brexit is significant. Potential impacts arise in relation to key areas of financing, resource availability, regulation, and employment. The focus of this article will be on the impact of Brexit for the public sector in relation to these key issues.

Uncertainty

With negotiations still at an early stage, there are a lot of unknown future decisions that will need to be made affecting what the final outcome of Brexit will be. Clarity will emerge as the negotiations continue. This means that the issues outlined here have the potential to change very quickly in the future, altering the whole outlook of the impact of Brexit on the public sector.

In the short term, these high levels of uncertainty combined with continued austerity could lead to further budget cuts. This lack of clarity over the implications of Brexit is especially pronounced in the public sector as services will continue to operate in parallel alongside the negotiations allowing little scope for delaying decisions to wait for that clarity.

Financing the public sector

Current situation

Currently the UK contributes roughly £16.8 billion each year into the budget of the EU. The UK does receive a rebate due to its funding of various EU initiatives, meaning that in reality the average annual net fee paid is closer to £8.8 billion. This constitutes a share of 0.5% of GDP. These fees will continue to be paid for the whole negotiation period. The UK also is the largest recipient of foreign investment from the EU and some of this goes into funding public sector initiatives.

How will this change?

Upon leaving the EU, the UK will no longer be required to make contributions to the European budget but it is expected by the EU that the UK will make payments towards the residual costs of EU Institutions and programmes which are likely to be amortized over a number of years given the potential scale of the sums involved. This means that promised ‘savings’ might not materialise for some years and that monies to support additional investment in public services will need to come from other sources: prosperity, additional taxes, printing money or public borrowing increases. It may be that as part of the deal negotiated, annual contributions are required for access to various EU institutions. This would likely be less than the current membership contribution but overall will not deliver any windfall benefit unless funded by other means.

In relation to EU investment directly into the public sector, Brexit will result in this ending. Amelioration of the effect of removing investment depends on any attempts by the UK government to replace these funds. This is certainly true in areas such as Further and Higher Education (e.g. universities) where EU investment helps to fund research. If this finance is not replaced, there is a risk to the reputation and research quality of universities as well as longer term financial support from donors and industry. It has been suggested that this potential shortfall could be avoided using the money saved from EU membership fees. The problem with this suggestion is that recent government spending shows a London-centric bias, indicating that this money may not be invested evenly around the country impacting the public sector outside London more severely. This would need a major change in government policy to resolve. There will also be an end to funding from the European Regional Development Fund which may exacerbate this problem in poorer regions of the UK and the government will also need to seek to replace this funding.

The practicality of re-investing money saved from not having to pay EU membership fees does depend on the economic impact of Brexit. If there is a period of economic instability, it may (subject to the influences described above) result in less government money being available and may reduce public sector spending. This would then result in difficulty for the public sector in attracting and retaining employees. It is widely agreed that there may be an economic shock resulting from Brexit and so the potential impact of this on public sector budgets needs to be avoided to reduce the potential impact. Already the falling value of the pound has led to rising inflation increasing operating costs. Even if a major shock was avoided, there will still be some economic difficulties stemming from Brexit due to high costs administering the change. The costs associated with administering and implementing Brexit are expected to be the single greatest contributor to government borrowing over the next five years and this cost means that the financial benefit to the public sector of Brexit may not be as high as may have first been estimated when the potential savings were considered alone.

Procurement

Procurement costs

The public sector relies on effective procurement within its supply chain to deliver the efficiencies and outcomes it requires. Access to particular overseas markets without the disruption of cost or other distortions may be essential to optimise value or deliver particular goods. The potential impact of leaving the single market and the EU customs union is that the public sector may find itself subject to tariff limited access to the European markets, increasing the cost of goods, delaying their delivery and potentially at odds with diverging UK/British Standards. This will have a significant impact on the public sector.

It was suggested by some campaigners for Brexit that the costs saved from not having to follow EU procurement law would be considerable and could be reinvested. These savings seem unlikely because successful procurement is an efficient and effective means of creating market opportunity and achieving lower overall transaction costs. It needs a clear and secure environment to take place in. This means that it is essential that confidence in the system is maintained and so even if the EU rules were removed, there would need to be a domestic system with which to replace them with. For example s.135 Local Government Act 1972 has always required Local Authorities to have standing orders which secure competition for some contracts and regulate the manner in which tenders are invited. Further the Public Contracts Regulations 2014 introduced provisions for sub-threshold procurements beyond the requirements of EU rules. The NHS had also regulated other areas not covered by the previous EU regime (see the Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013/500). The world has moved on since the 70’s and requirements for good governance now requires more comprehensive procurement processes.

Furthermore, membership of the WTO-GPA rules is likely to be a condition of any trade deal that the UK has with the USA, Canada or other trading partner. This will require a public procurement regime that is non-discriminatory, open, transparent and judicially reviewable. Looking forward, authorities are unlikely to have the ability to favour UK or regional suppliers.

In terms of challenge, although the current specific challenge process under the Regulations might go, decisions of a public body are potentially subject to judicial review. There is also precedent for the courts intervening where an authority failed to comply with its internal or published rules for tendering on the basis that they form an implied contract. Of course, another change which has occurred in recent years is a tendency amongst contractors to seek redress in the courts if they believe they have been wrongly treated. So procurement challenge are likely to remain firmly oon the agenda.

Labour accessibility

Current situation

The free movement of people is one of the central freedoms of the EU. This means that the public sector is able to employ anyone who is an EU citizen, giving access to a large pool of potential employees. According to the Chartered Institute of Public Finance and Accountancy, 10% of NHS and social care workers originate from within the EU. This indicates the size of the group that these people make up in the public sector workplace.

Labour markets after Brexit

After leaving the EU, free movement will end. This will mean that the public sector will need to adjust to a major reduction in the talent pool. This will increase the difficulty of recruiting enough workers to fill vacancies, especially considering the constant need for employees to alleviate pressure on modern public services.

The potential difficulty in attracting overseas workers is further increased by a perception that the UK is a less welcoming place after the Brexit vote. This suggests a possible further reduction in potential employees willing to come to the UK from abroad. The public sector will therefore need to focus more closely on attracting domestic workers. The risks of squeezed budgets in the case of economic difficulties could also mean that there a lack of funding for the training of these workers which might lead to resourcing issues.

Currently there is no deal in place to allow EU citizens who currently work within the UK to remain in the country after Brexit. If this remains the situation, a large number of the current workforce will have to leave the UK making it very hard for the public sector to deliver services to the required standard. It is likely that the rights of current residents to remain are high on the agenda of both sides in the negotiations so there should be progress on resolving this issue in the near future.

If the incoming labour stream is reduced due to the reasons suggested above, there is evidence that the remaining incoming workers would become overly concentrated in London. This would exacerbate skills shortages elsewhere in the country, having a serious impact on employee availability in the public sector. This will need to be considered by the government in formulating its new immigration policy and exceptions or quotas may need to be considered in areas where there are skills shortages (e.g. doctors, midwifes, nurses).

Legal Regulation

General EU legal issues

The Repeal Bill will repeal the European Communities Act 1972, converting existing EU law into domestic law. Each piece of legislation will then be assessed to see if it needs amending in the UK context. This will result in a large administrative cost for government assessing what needs changing. This cost is especially significant considering the level of lobbying that there is likely to be from some parties trying to get particular changes made. This process does mean that at least in the short term, the public sector will still be bound by current EU law. This means that regulations for workers such as the Working Time Regulations 1998 will still have effect, as will requirements such as data protection laws and environmental regulation. There is a further need for clarity where legislation requires access to EU institutions such as in relation to health and safety law as it is unclear what will happen when access to these institutions is withdrawn. It is impossible to say what changes will occur moving forward. Any changes will have a potential significant impact if the public sector has to change working practices to accommodate them.

Conclusion

The potential impacts of Brexit to the public sector are potentially significant albeit in the short term the Repeal Bill will minimise immediate changes based on a degree of continuity of legal requirement. The acceptance, for example, of the new EU wide approach to Data Protection (General Data Protection regulations) is also an example. In the short term, the removal of free movement of goods and people and the loss of EU funding streams will likely be the more obvious areas of impact – causing current ‘EU’ employees to reconsider their position or deter inward job migration.

Longer term impacts will include the demand of the costs of Brexit on the public purse, the potential negative effect on the economy overall, the effect on the demand for public services as well as the sheer distraction of dealing with Brexit. A successful outcome in the negotiations is crucial and rests very much with HM Government and to the extent the Government determines along the way, Parliament. Local Government will have views and a voice – whether it will be heard in the cacophony of Brexit noise is another thing. It is perhaps more important than ever that in this crucial period of change that the quality and delivery of essential public services is maintained and this arguably should be the sector’s primary focus.

Article 50 has been triggered marking the start of the formal process of the UK’s withdrawal from the EU. To help you understand what the possible effects for businesses might be, read our high level review of the practical implications of Brexit across a range of legal issues.

For further information on Brexit and the process, read our guide below.

To talk through any of the issues raised please contact Trudy Feaster-Gee or Shaukat Ali.

Background

The Brexit Competition Law Working Group (BCLWG) was set up by Sir John Vickers, Professor Amelia Fletcher OBE, John Fingleton, Sir Nicholas Forwood QC, Ali Nikpay, Jon Turner QC and Professor Richard Whish QC (Hon), following the UK’s vote to leave the EU on 23 June 2016. The aim of the BCWLG is to foster public debate and inform government policy on the implications of Brexit for competition law and policy.

On 26 July 2017, the BCLWG published a report setting out its recommendations on the implications of Brexit for UK competition law and policy. The report can be found here.

Summary of report findings

The report focuses on the impact of Brexit on the various elements of the UK competition regime and the consequent practical implications for enforcement of the competition rules. Its working assumption is that Brexit will result in the UK leaving the EEA and the “single market”. However, it notes that there is a possibility that the UK will remain in the EEA perhaps for a transitional period, which would require less change as most EU competition law and practice is replicated in the wider EEA.

The main conclusions and recommendations of the report are as follows:

The BCLWG’s overall view is that the interests of the UK economy, business and consumers will be best served by continuity of UK competition law and policy, so far as possible following Brexit.

The BCLWG does not consider that Brexit gives cause for radical reform of the principal UK competition statues, nor of the role of the UK competition authorities. However, the BCLWG considers that primary legislation will require amendment particularly section 60 of the Competition Act 1998 (CA 1998) (to require UK authorities and courts to “have regard to” EU jurisprudence). It also recommends repeal of section 10 of the CA 1998 so that future EU block exemptions from the competition rules (e.g. the Vertical Agreements Block Exemption) are not automatically imported into UK law; they would become a matter for the UK to decide.

To preserve continuity of the ability of private parties to bring actions for damages in the UK for breaches of EU (as well as UK) competition law, the report recommends retaining sections 47 and 48 of the CA 1998.

In relation to mergers, the BCLWG sees no grounds for amending the existing statutory criteria, in particular a change to the substantive assessment of mergers (the “substantial lessening of competition” test). The BCLWG also does not consider that the current regime regarding the ability of the Government to intervene in mergers that raise public interest issues needs to be changed.

The BCLWG has identified various complex transitional issues for both antitrust and merger investigations. It makes a series of recommendations on the carrying forward of commitments from past antitrust and merger cases, and of leniency arrangements. The BCLWG also identifies ways to address issues relating to cases that “straddle” the Brexit period and parallel EU and UK investigations. It recommends, in particular, that the Government seeks to negotiate continued membership of the UK within the European Competition Network, absent which bilateral co-operation agreements will be required.

The BCLWG also addresses the implications for the Competition and Markets Authority in terms of resources, workload and priorities.

Brexit has led to major uncertainty for employers about the position of workers who are EU citizens living and working in the UK. We analyse the government’s recent proposal regarding ‘settled status’ for qualifying EU citizens.

On 26 June 2017, the government published a policy paper titled, “The United Kingdom’s Exit from the European Union: Safeguarding the Position of EU Citizens Living in the UK and UK Nationals Living in the EU”. The paper (still at proposal stage and therefore subject to change) envisages a new residence status in UK law for qualifying EU citizens, described as “settled status”.

What is ‘settled status’?

Settled status appears to be very much like “permanent residence” under the current system. Those who obtain it will be free to reside in the UK in any capacity and will be able to apply for British citizenship when they become eligible.

The current proposal is that if an EU citizen has (and can evidence) five years’ continuous residence in the UK before a set cut-off date (the ‘Specified Date’) and they are still resident in the UK on the date they apply for their new immigration status, they will be eligible for settled status. We do not know what the Specified Date will be, but the government paper states that it will be no earlier than 29 March 2017 (the date that Article 50 was triggered) and no later than the date that the UK formally leaves the EU (the ‘Exit Date’). It could be the Exit Date itself if no agreement is reached with the EU for it to be an earlier date.

All EU citizens (and their families) in the UK at the point of the Exit Date, regardless of when they arrived in the UK, will have to apply to obtain an immigration status in UK law. Given that it would be impossible for all EU citizens residing in the UK to apply on the Exit Date, the government is proposing a period of blanket residence permission which will start immediately on the Exit Date and will run for a period of up to two years (the ‘Grace Period’). All EU citizens who want to remain in the UK beyond the end of the Grace Period must apply for an immigration status under UK law before the end of the Grace Period.

We have set out below what this means for EU citizens, depending on when they arrived in the UK, under the current proposals.

EU citizens who arrived in the UK before the Specified Date and who will have been here for five continuous years before the end of the Grace Period

These EU citizens will be eligible to obtain settled status subject to them being able to evidence the five years’ residence. They will have to apply for settled status under the new UK system and provide the documents specified under that new system in order to obtain settled status.

EU citizens who arrived in the UK before the Specified Date but will not have been here for five continuous years before the end of the Grace Period

These EU citizens will be able to apply for temporary status under the new UK system before the end of the Grace Period in order to remain resident in the UK. Once they have accumulated five years’ continuous residence, they will be eligible to apply for settled status.

EU citizens who arrive/arrived in the UK after the Specified Date but before the Exit Date

EU citizens who arrive after the Specified Date will be able to exercise treaty rights in the usual way up to the Exit Date (if the Specified Date is a date before the Exit Date). Once the exit takes place, free movement rights are likely to end. However, these citizens will not be required to leave the UK immediately – they will be able to stay on during the Grace Period and will need to apply for a temporary residence document in order to give them permission to stay in the UK beyond the Grace Period. If such citizens wish to stay after the temporary permission expires, further permission will need to be obtained but this further permission will be dependent on the rules in force in the UK at that time. This means that such EU citizens are not guaranteed to be eligible to apply for permission to stay in the UK permanently.

EU citizens who want to come and live in the UK after the Exit Date

The ability of such EU citizens to come to the UK to live/work will be subject to the new UK law immigration system which will be put in place once the exit takes place. We still do not know what such a system will look like.

What does this mean for those EU citizens who currently have a document certifying permanent residence?

It is proposed that all EU citizens in the UK who currently have a document certifying permanent residence will have to apply again under the new UK system for settled status. The government paper does mention that the process may be more streamlined for those who already have a document certifying their permanent residence (and such a document is likely to be of assistance in terms of the documentary evidence that EU citizens must provide under the new UK system). However, it suggests that a document certifying permanent residence under the current system may hold little weight following the Grace Period.

Those EU citizens who have obtained British citizenship will be treated in law the same as any other British citizen. An EU national must have a document certifying permanent residence before they can apply for British citizenship. It is therefore worth an individual applying for the permanent residence document if they are eligible (or will become eligible) to apply for British citizenship before the Exit Date. In addition, it may be worth EU citizens applying for the permanent residence document, even if they will not become eligible for British citizenship before the Exit Date, in the hope that it will assist with the settled status application.

Nothing is yet set in stone and we will publish further updates as the government makes further announcements on this topic.

If you have any queries please contact Shakeel Dad or Charlotte Smith.

Since January 2015 parties within the European Union have been allowed to choose which courts to litigate in. This relatively new development has meant that litigants in Europe now have an effective and pragmatic system for resolving disputes. However, subject to the outcome of negotiations, the arrangements for litigation after Brexit may change.

Malcolm Simpson, partner in the Litigation & Dispute Resolution Group at Walker Morris, wrote an article for Corporate Disputes Magazine which outlines several possible scenarios and the practical steps that businesses can take in order to minimise the scope for jurisdictional disputes and unwelcome satellite litigation. Read the full article here. Pan-European litigation after Brexit – Corporate Disputes Jan-Mar 2017

Background

On 30 March 2017, the Government published a White Paper: Legislating for the United Kingdom’s withdrawal from the European Union (White Paper). The White Paper can be found here.

The White Paper follows the Government’s formal notification to the European Council on 29 March 2017 of the UK’s intention to leave the European Union, and its triggering of the procedure under Article 50 of the Treaty on European Union. You can read our analysis of the Government’s Article 50 withdrawal notice here.

The White Paper sets out the Government’s legislative strategy for preparing for Brexit, and primarily, the intended mechanics of the Great Repeal Bill (Bill).

Overview of the White Paper

The Bill has three main aims:

To repeal the European Communities Act 1972 (“ECA 1972”) on the day the UK leaves the EU.

To convert EU law (including case law) as it stands on the day the UK leaves the EU into UK law.

To enable changes to be made by secondary legislation to those laws that would otherwise not function sensibly after the UK exits the EU.

In effect, the Government intends that, wherever practicable, the same law and rules will apply immediately before and immediately after the UK’s exit from the EU.

Conversion of existing EU law

Section 2 of the ECA 1972 gives effect to EU law in domestic law. The Government describes the repeal of the ECA 1972 as a “first step” in order to provide “maximum clarity” that, following Brexit, UK law and not EU law will have primacy in the UK. This will occur on the day the UK leaves the EU.

The White Paper estimates that “the necessary corrections to the law will require between 800 and 1,000 statutory instruments”, or about the same number of statutory instruments as are now made in a single year.

The White Paper observes that the UK will remain a full member of the EU in the intervening period and that the rights and obligations that entails remain in force until the UK formally leaves the UK. The Government intends to continue to negotiate, implement and apply EU law during this period.

Delegated powers

The Bill will contain delegated powers for the Government to make secondary legislation to enable “corrections” to be made to the statute book, to fill any gaps that arise as a consequence of leaving the EU in order to allow existing legislation to operate effectively. For example, this will be necessary where certain pieces of legislation make express reference to EU law or institutions.

Some commentators have criticised the proposed inclusion of these delegated powers as enabling a sweeping political power-grab. However, the White Paper refers to the powers as being limited to making technical changes rather than introducing any policy changes. This is likely to be the subject of significant ongoing political debate before the Bill is passed.

Court of Justice of the European Union

A declared aim of the Government in the Brexit process was that the judgments of the Court of Justice of the European Union (CJEU) would no longer bind the courts in the UK.

The White Paper outlines the nature of the UK’s interaction with the CJEU. The Bill will bring to an end the jurisdiction of the CJEU in the UK and will not oblige the UK courts to consider cases decided by the CJEU after the UK has left the EU.

However, the Bill will provide that historic CJEU case law be given the same binding, or precedent, status in UK courts as decisions of the Supreme Court. Any question as to the meaning of EU-derived law will be determined by the UK courts by reference to the CJEU’s case law as it exists on the day the UK leaves the EU.

When will the Bill come into force?

The plan is for the Bill to complete its passage through Parliament well before the time when the UK leaves the EU, but for it to include “commencement provisions” enabling ministers to bring it into force at the moment of their choosing. The Government has said that the Bill will come into force “from the day we leave the European Union”. This is likely to be 29 March 2019, being two years after the Government formally triggered Brexit by delivering the Article 50 notice to the European Council on 29 March 2017, although if Article 50 negotiations are extended, this may be later.

What next?

The Government’s intention is for the Bill to be introduced in the next Queen’s Speech and introduced in the parliamentary session. The session is due to begin in May or June 2017.

The progress of the Bill will run in parallel with the Article 50 negotiation process, but it appears it will be designed to operate effectively in the event no agreement is reached within the two-year period for negotiation. The Government also intends to introduce a number of other bills during this period, to cover such matters as the customs regime and immigration.

A significant amount of the next parliamentary session will be consumed by the mechanics of the Bill and the supplementary bills that follow it. There is little doubt that transposing EU law into UK law is a substantial task and will entail a huge amount of work.

If you should like to discuss the above, or any implications for your business, please contact Trudy Feaster-Gee (Partner, Barrister) or Shaukat Ali (Director) in the first instance.

Overview

On 29 March 2017, nine months after the UK’s Brexit referendum vote of 23 June 2016, the UK Government gave notice of the UK’s intention to leave the European Union in accordance with Article 50(2) of the Treaty on the European Union. The notification took the form of a six page letter, which was given by Sir Tim Barrow (Britain’s ambassador to the EU) to Donald Tusk (the EU Council president). The Brexit process is now formally under way.

The UK and the EU will have two years to negotiate a withdrawal agreement (unless this timeframe is extended by agreement between the UK and EU Member States). For now, the UK remains part of the EU until exit. In practical terms, nothing has changed with the triggering of Article 50, except that the timetable has crystallised.

Article 50 letter

The six page letter triggering Article 50 sets out the Government’s approach to the discussions regarding the UK’s exit from the EU and the UK’s future partnership with the EU after Brexit. The main points to note in the letter are set out below:

The letter states that the UK wants a “deep and special partnership” with the EU “as your closest friend and neighbour”.

The letter confirms that the UK will no longer be part of a single market (as set out in the Prime Ministers Speech of 17 January 2017), but it is the Government’s desire to reach a comprehensive UK-EU free trade agreement. The Government recognises that it will be a challenge to reach such a comprehensive agreement within the two-year period set under Article 50 for withdrawal discussions, but says that this can be done. The Government acknowledges that failure to reach an agreement in relation to the future relationship prior to the UK’s departure would result in the UK and the EU trading on World Trade Organisation terms, but it indicates that this would also result in weakened co-operation on issues relating to security.

The letter calls for negotiations on withdrawal and on the future relationship between the EU and the UK to take place in parallel, a point which has been rejected by the European Commission.

The departure process should be “fair and orderly… with as little disruption as possible on each side”. The letter adds that both the EU and the UK would “benefit from implementation periods to adjust in a smooth and orderly way to the new arrangements”. In other words, there should be transitional arrangements.

The letter confirms that the Government will publish a White Paper on 30 March 2017 on the Great Repeal Bill. The Great Repeal Bill will repeal the European Communities Act 1972 and will convert the existing body of EU law into domestic law in order to ensure certainty for both UK citizens and those doing business in the UK.

In relation to the future legal and regulatory framework, the letter acknowledges that UK companies trading with the EU after Brexit will have to align with the rules agreed by institutions of which the UK is no longer a part, just as UK companies do in other overseas markets.

The letter states that the EU and UK should reach an early agreement about the rights of EU citizens living in the UK and UK citizens living in the EU.

The European Council’s response to the UK’s notification

On 29 March 2017, the European Council issued an immediate statement acknowledging receipt of the UK’s Article 50 notice. The statement includes the following points:

The first step for the EU is to adopt guidelines for the negotiations by the European Council. The UK will, naturally, not be part of this process. The guidelines will set out the overall positions and principles in light of which the EU (represented by the European Commission) will negotiate with the UK. Mr Tusk has said the draft guidelines will be ready by 31 March 2017. A special European Council meeting has been scheduled for 29 April 2017 to adopt the guidelines, which will need to be approved unanimously by the heads of the remaining 27 Member States. Once agreed, the European Commission will use the guidelines to draft a more detailed negotiating mandate.

The first priority in these negotiations is to minimise the uncertainty for EU citizens, businesses and Member States caused by the UK’s decision. The initial focus will be on all key arrangements for an orderly withdrawal.

The process

The negotiations will begin once the detailed aims have been drawn up in the form of Council directives for approval by the remaining 27 EU Member States. This will probably take place in June 2017 or July 2017.

A Commission team, headed by Michel Barnier (a former French Minister and European Commissioner) and which is already in place, will lead the negotiations for the remaining 27 EU Member States. Their governments will input into the process through a Council Working Party chaired by Belgian diplomat Didier Seeuws. The European Parliament’s lead Brexit negotiator is Guy Verhofstadt (a former Belgian Prime Minister), who will have no formal role but is expected to be closely associated with the talks.

The negotiations will proceed against a backdrop of political uncertainty: the French presidential elections on 23 April 2017, with a likely second round on 7 May 2017, followed by parliamentary elections in June 2017; a general election in Germany on 24 September 2017; and an Italian general election early next year. Each of these events could potentially have a major impact on the negotiations.

In autumn 2017, the UK Government is expected to introduce the Great Repeal Bill to leave the EU and adopt the existing EU laws as British laws. A raft of other primary and secondary legislation will also be required to put in place new policies and administrative processes in a wide range of areas such as customs, trade and immigration. This must be done before the UK exits the EU, which poses a difficult challenge.

What will happen at the end of the two-year negotiation period is still unknown – talks could result in anything from a final agreement to an extension of time, or to the UK leaving the EU with no deal and years of negotiation to follow.

If you should like to discuss the above, or any implications for your business, please contact Trudy Feaster-Gee (Partner, Barrister) or Shaukat Ali (Director) in the first instance.

This note provides an update on Brexit-related matters in light of recent developments.

The European Commission publishes White Paper on the future Europe

On 1 March 2017, the European Commission (“EC”) proposed five different scenarios for a future European Union (“EU”) following the UK’s departure. How the EU operates after Brexit will have far-reaching consequences, not least for trade, financial services, competition and technology.

The first, referred to as Scenario 1: Carrying On is likely to be a realistic possibility. In this option the status quo will largely be maintained, with the new EU focusing on delivering its reform agenda in the spirit of the EC’s New Start for Europe from 2014 and of the Bratislava Declaration agreed by all 27 Member States in 2016.

In Scenario 2: Nothing but the Single Market, the EU becomes simply a trade bloc, which would mean free movement for goods, services and capital, but not for business people or tourism. The EU would not have a hand in international issues such as tax evasion and climate change and even eurozone cooperative projects would, in all likelihood, be pared back.

Scenario 3: Those Who Want More Do More envisages a future EU which proceeds as today but allows willing Member States to do more together in specific areas such as defence, internal security or social matters. This scenario quite closely mirrors the “multispeed Europe” which German Chancellor Angela Merkel has called for, and could win significant support from the EU’s national governments, but this could mean that citizens’ rights would start to vary depending on in which Member State they reside.

Scenario 4: Doing Less More Efficiently has been referred to in the press as the “divide and rule” option. It involves the future EU focusing on delivering more in selected policy areas (such as trade, security, migration, the management of borders and competition law), while withdrawing from some other areas. Ultimately this option could involve a clearer division of responsibility and a better understanding of matters handled at European and national level, but initially there could be difficulty in agreeing the areas which the EU should prioritise.

A final option and one that is not considered likely, is Scenario 5: Doing Much More Together. In this scenario Member States decide to share more power, resources and decision-making across the board than ever before. While this could mean that decisions are agreed faster at European level and rapidly enforced, it could also result in the alienation of those who feel that the EU has already taken away too much power from national authorities.

EC President, Jean-Paul Juncker, has said that he has no preference for any of the scenarios and has asked Member State leaders to express their views at a summit meeting in December, with a view to the EC mapping out a path for the future of the EU in 2018.

The legal opinion considers the UK’s constitutional requirements for withdrawing from the EU under Article 50 of the Treaty on European Union, and whether an Article 50 notice can be unilaterally revoked if those constitutional requirements are not met.

In brief, the legal opinion argues that:

Article 50 states: “any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements”.

It is a requirement of the UK constitution that Parliament’s authorisation is needed for either:

the final terms of the UK’s withdrawal agreement with the EU; or

the UK withdrawing from the EU without agreement being reached.

If Parliament does not approve the final terms (or approve leaving the EU without a withdrawal agreement), the Article 50 notice will lapse and the UK will remain in the EU.

Alternatively, Parliament could simply decide to revoke the Article 50 Notice and the UK would remain in the EU.

House of Lords Article 50 debate

On 1 March 2017, the House of Lords voted to amend the Bill to force the Government to guarantee the rights of EU citizens living in the UK. The amendment calls for the Government to bring forward proposals ensuring the rights of EU citizens living in the UK, within three months of triggering Article 50.

However, it has been reported that the Government is confident that the amendment will be rejected by Parliament later this month. The Government has also insisted the timetable for triggering Article 50 remains unchanged.

The House of Lords will vote on 7 March 2017 on a further amendment, which would give Parliament a “meaningful” vote on the outcome of the Government’s Brexit negotiations.

The amended Bill is expected to return to Parliament on 13 and 14 March 2017 when MPs will debate whether to accept the changes proposed by the House of Lords.

Article 50 Notice

It has been reported that the Government intends to notify the EU of the UK’s intention to leave on 15 March 2017, triggering two years of negotiation that would end with the UK leaving the EU in 2019 (unless this period is extended by unanimous agreement between the UK and all EU Member States).

If you require further information, please contact Shaukat Ali in the first instance.

The road to the UK’s Brexit is starting to become a little clearer. The Prime Minister, Theresa May, announced last week that she wants the UK to leave the single market. The Supreme Court decided on 24 January 2017 that Parliament, and not the Prime Minister, needed to trigger Article 50. Once Article 50 has been triggered the Government will bring forward the Great Repeal Bill designed to entrench EU law into UK law until such time as the Government decides to repeal certain aspects of EU legislation. However, as always, the devil will be in the detail and this is especially true in the case of the knotty problem of GMP equalisation. This Insight takes a brief look at the issues.

GMPs and equalisation: a quick reminder

GMPs (guaranteed minimum pensions) accrued in defined benefit schemes which were contracted out of the SERPS (an additional state pension) between 1978 and 1997. The method for calculating GMPs is set out in legislation. It is possible that GMPs for men and women may be unequal because they accrue at different rates for men and women and GMPs are payable at 65 for men and 60 for women reflecting the state pension age at the time.

EU law prevents discrimination on grounds of sex. There has been some uncertainty whether or not pension schemes had to remove the discriminatory effects of GMPs because the rules governing GMPs were set out in legislation. The Government maintains that it is for schemes to equalise GMPs and has consulted on more than one occasion on an equalisation methodology.

GMPS and equalisation: 2016 consultation

The Government’s latest consultation on GMP equalisation was published in November 2016. The proposed methodology involves a one-off calculation and actuarial comparison of the benefits a man and woman would have. The greater of the two amounts is then converted into an ordinary scheme benefit under the GMP conversion legislation. The Government is clear, however, that the proposed methodology does not comprise legal advice to schemes on how to equalise and there is no obligation on schemes to use the proposed methodology.

GMPs and Brexit

The extent to which EU law requires GMPs to be equalised is subject to uncertainty. The Government’s position that the proposed methodology “does not comprise legal advice to schemes on how to equalise” stems from the fact that UK law derives from EU law. It is a shame that the Government has not said that to the extent GMP equalisation is required as a matter of UK law and this is not incompatible with the requirements of EU law to the extent these apply to the relevant UK benefits from time to time, the published methodology is a legally permissible way of equalising GMPs. Unless the Government does this there is a risk that schemes may be required to equalise GMPs on a different basis in the future. Of course there is still the unanswered question as to whether schemes will need to equalise GMPs at all post Brexit!

On 24 January 2017 the UK Supreme Court, the highest court in the land, upheld the judgment of the High Court in R (on the application of Miller and others) v Secretary of State for Exiting the European Union that an Act of Parliament is required to authorise ministers to give notice of the decision of the UK to withdraw from the European Union (EU). At the same time, the Supreme Court also held that the devolved administrations of Northern Ireland, Scotland and Wales do not have to be consulted on, and crucially cannot veto, the UK’s decision to leave the EU. A link to the Supreme Court’s judgment can be found here and to the press summary here.

Background: Brexit and Article 50

Following the Brexit referendum result on 24 June 2016, there has been controversy and uncertainty regarding the process for leaving the EU. Article 50 of the Treaty on the European Union (TEU) sets out the procedure by which a Member State may withdraw from the EU. It provides that a Member State may decide to withdraw “in accordance with its own constitutional requirements” and that it must then notify the EU Council of its intention (an Article 50 notice). Unless agreed otherwise, service of an Article 50 notice triggers a two year negotiating period, at the end of which the relevant Member State leaves the EU, whether or not a withdrawal agreement is in place.

The question in this case was whether the Government can trigger Article 50 without obtaining parliamentary authorisation, or whether it can rely on its royal prerogative powers [1] without the need for such authorisation. The Claimants, Mrs Gina Miller and others, argued for the former, and the Defendant, the Government, argued for the latter.

High Court judgment

On 3 November 2016, the High Court agreed with the Claimants’ submissions and held that the royal prerogative powers do not give the Government authority to trigger Article 50 without the approval of Parliament. The High Court held that there was a conflict of constitutional principles in this case, but that the supremacy of Parliament is constitutionally higher than the royal prerogative powers. Furthermore, the European Communities Act 1972 (ECA 1972) had a fundamental impact on domestic law, to the extent that it cannot have been Parliament’s intention for rights it created to have been subject to changes via the royal prerogative powers.

The Government appealed the High Court decision. The appeal “leapfrogged” the Court of Appeal and was heard by all 11 Justices of the Supreme Court (a constitutional first, at least in modern times) over four days in December 2016.

Supreme Court judgment

The Supreme Court confirmed that an Act of Parliament is required to authorise the Government to trigger the Article 50 process and it also held that UK ministers are not legally compelled to consult the devolved administrations before triggering Article 50.

Parliamentary approval is required to trigger the Article 50 process

By a majority of 8 to 3 judges, the Supreme Court ruled that:

The Government cannot rely on its royal prerogative powers to give notice to leave the EU under Article 50 of the TEU, but must be authorised to do so by an Act of Parliament.

This is because section 2 of the ECA 1972 made EU law a direct source of UK law. The Government argued that since section 2 authorised changes to UK law resulting from changes to EU law, it also caters for the situation where UK law changes because the UK withdraws from the EU. The Supreme Court held that this was incorrect because cutting off a primary source of UK law by withdrawing from the EU amounts to a fundamental change to the UK constitutional arrangements.

Withdrawal from the EU will result in the removal of certain rights of UK citizens under UK law and so cannot be done without prior authorisation by an Act of Parliament.

Neither the ECA 1972 nor the European Union Referendum Act 2015 contains such authorisation. Such a provision would require clear words – there are none and in fact the ECA 1972 indicates the absence of such a power.

The resolution of the House of Commons of 7 December 2016 calling on the Government to exercise Article 50 was a political act only which does not constitute the required parliamentary authorisation.

A new Act of Parliament is therefore required before the Government can trigger Article 50.

Lord Reed, Cranwath and Hughes issued dissenting judgments. Each of the Justices would have allowed the Government’s appeal. The Justices considered that the ECA 1972 only introduced EU law into UK domestic law on a conditional basis. That condition was the continued application to the UK of the EU’s treaties. Treaty making and withdrawal fell within the Government’s prerogative powers, so the Government controlled the condition.

No “legal veto” for the devolved administrations in Scotland, Wales and Northern Ireland

The Supreme Court also considered arguments that the Government is required to consult the devolved administrations in Scotland, Wales and Northern Ireland before exercising Article 50. The Supreme Court ruled unanimously that there is no such requirement:

devolution legislation was enacted on the basis that the UK was a member of the EU but does not require it to remain a member

membership of the EU is at a UK level and the issue is therefore one for the UK Parliament

in relation to the Sewel Convention, which governs the relationship between Westminster and the devolved administrations, the Supreme Court held that this was a political convention only, without force of law, such that the courts do not have power to rule on its scope or operation.

This aspect of the decision, although widely expected, is important as it removes any suggestion that the devolved administrations will be able to exercise a veto over Brexit.

What happens next?

The court process in the Miller case is now exhausted. The next steps in the Brexit process are now for the Government to introduce legislation, which must pass through the Houses of Commons and Lords, to sanction the Article 50 withdrawal process and service of the trigger notice. By the expiry of two years following service of the Article 50 notice the UK will cease to be a member of the EU. The timetable and terms of the UK’s departure will be a matter of political negotiation, and the key messages from Theresa May’s speech regarding the UK’s negotiating objectives can be accessed here.

In response to the Supreme Court’s judgment, the Government immediately confirmed that it will comply with the decision. The Government announced that it will publish a White Paper (i.e. a detailed Government report) on its Brexit strategy and expects to lay a bill to approve the triggering of Article 50 “within days” with a second reading taking place next week, with a view to it being placed before the House of Lords by the beginning of March. There has been speculation that the bill could be short. The Supreme Court made clear that the form such legislation will take is entirely a matter for Parliament. The Government also reiterated that, irrespective of the need for legislation, it was still the Government’s intention to stick to its proposed timetable. It remains to be seen how long the parliamentary process will take and what conditions, if any, may be attached to parliamentary approval.

Meanwhile, other legal challenges continue in the UK and Ireland. In the UK, the Government faces a separate judicial review case of Yalland and Wilding and other v Secretary of State for Existing the European Union. In this case, Mr Yalland and Mr Wilding contend that the UK can only leave the single market through the process of Article 127 of the EEA Agreement (which provides for 12 months’ written notice to exit) which can itself only be triggered following Parliamentary approval. They also seek clarification of the Government’s stated position that the UK’s membership of the EEA will automatically cease on the UK leaving the EU. In Ireland, a legal challenge under the name of Jolyon Maugham QC, with crowd funding, is proposing to launch litigation against the Irish Government, European Commission and EU Council of Ministers. The basis of this litigation is to seek, amongst other things, clarification as to whether an Article 50 notice can be revoked: a question on which the European Court of Justice in Luxembourg is the ultimate decision-maker. The Supreme Court in the Miller case did not consider the issue of whether an Article 50 notice is revocable because it accepted the parties’ agreement that an Article 50 notice is not revocable.

Walker Morris will continue to report on developments.

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[1] Prerogative powers are a body of discretionary powers held by the Crown and exercised by the Government in carrying out executive functions. The exercise of prerogative powers does not require prior parliamentary approval.

On 17 January 2017, the Prime Minister, Theresa May, gave her long awaited speech regarding Brexit and the UK’s negotiating objectives. The full text of the Prime Minister’s speech is available here.

The speech provided details of 12 policy aspirations. The following points are worth drawing attention to:

The UK to leave the single market: The UK will not seek to be a member of the single market (as distinct from single market access) following departure from the EU. The Prime Minister said “I want to make clear that what I am proposing cannot mean membership of the single market.”

The desire for a Free Trade Agreement with the EU: The UK will seek to agree a free trade agreement with the EU. This may “take in elements of current single market arrangements” in certain areas, such as freedom to provide financial services across national borders where it “makes no sense to start again from scratch when Britain and the remaining Member States have adhered to the same rules for many years.”

Rejection of the EU Customs Union: The Prime Minister said that the UK wishes to negotiate trade deals with non-EU countries post-Brexit. Full membership of the EU customs union prevents the UK from negotiating its own trade deals because this lies within the exclusive competence of the EU. On that basis, the Prime Minister does not want the UK to be bound by the common commercial policy and the common external tariff. However, the Prime Minister announced that she wanted the UK to have a customs agreement with the EU. The Prime Minister stated that this could come in the form of a completely new customs agreement, or the UK becoming an associate member of the customs union in some way, or retain some parts of it.

Rejection of the European Court of Justice: The Prime Minister stated that the European Court of Justice would not have jurisdiction over the British court system post-Brexit.

The desire for an orderly phased process of implementation: The UK will seek a “phased process of implementation” and not “unlimited transitional status” after the conclusion of the two year process initiated by the triggering of the Article 50 The aim of this process will be to allow businesses to plan and prepare for any new arrangements agreed between the UK and the EU. The Prime Minister suggested that this process might apply to, amongst other things, the future legal and regulatory framework for financial services.

Parliamentary approval: The Prime Minister declared that the Government will put the final deal that is agreed between the UK and the EU to a vote in both Houses of Parliament, before it comes into force.

An end to the free movement of EU citizens in the UK: One of the main freedoms of the single market is the free movement of EU citizens to stay and work in another EU Member State. A key aim of the Government is to restrict the uncapped immigration of EU citizens in the UK. The UK has now committed itself to a position where it must be able to place limitations on free movement of EU citizens in the UK.

EU citizens living in the UK: It was widely believed before the Prime Minister’s speech that the UK was refusing to guarantee the ability of EU citizens to continue to work and live in the UK and that this guarantee would only be forthcoming if reciprocal rights were granted to UK citizens living in EU Members States at the end of the negotiations. It seems from the text of the Prime Minister’s speech that the UK is prepared to give this assurance right away but that several EU Member States (not named) are currently refusing to make a reciprocal concession in favour of UK citizens in their countries.

Existing UK law will be implemented into UK law: The Prime Minister confirmed that the existing body of EU law which has been implemented into UK law will remain part of UK law post-Brexit.

No deal rather than a bad deal: The Prime Minister said that the UK will leave the EU without an exit deal, if no good deal is on offer.

Background

On 3 November 2016, the High Court ruled in R (on application of Miller) v Secretary State for Exiting the European Union [2016] EWHC 2768 (Admin) that Article 50 cannot be invoked without parliamentary approval. The full judgment is available here.

The process for departure from the EU is set out in Article 50 of the Treaty on the Functioning of the European Union. This provides that a Member State may decide to withdraw from the EU in accordance with its own constitutional requirements. Once that decision has been made, the withdrawal process is initiated by the Member State giving notice to the European Council of its intention to withdraw. Withdrawal actually occurs on the date of entry into force of a withdrawal agreement between the EU and the (former) Member State, or failing that, two years after the notification unless the European Council (i.e. the Member States) and the withdrawing state decide unanimously to extend the period.

Miller concerned the UK’s constitutional requirements for making the decision to withdraw from the EU and, as a result, what authorisation the Government needs before it can give notice. The Government argued that it is entitled to use its prerogative powers to trigger Article 50. Prerogative powers are a body of discretionary powers held by the Crown and exercised by the Government in carrying out executive functions. The exercise of prerogative powers does not require prior parliamentary approval. In contrast, the claimants argued that the Government could not use its prerogative powers to act on behalf of the Crown to exercise Article 50 and needed the authorisation of Parliament to do so.

The High Court’s ruling

The High Court unanimously decided in favour of the claimants and against the Government. The key aspects of the judgment are:

The High Court emphasised the significance of constitutional principles in play. In particular, the sovereignty of Parliament and secondly that the Crown has no power to alter the law of the land by using the royal prerogative.

The High Court emphasised that these strong constitutional principles drive the interpretation of constitutional legislation, including the European Communities Act 1972 (“ECA”) which gives effect to EU rights and obligations in domestic UK law.

It was agreed by both sides that the ultimate consequence of exercising Article 50 will be the removal of domestic UK rights created by virtue of the ECA. However, the Government contended, essentially, that the effect of the ECA was subject to whether the UK was bound by the EU treaties, which itself was an issue where the royal prerogative was in play. It claimed that the ECA had not removed its right to use the royal prerogative to withdraw from the EU treaties. The claimants, on the other hand, argued that the royal prerogative is limited to international affairs, and withdrawal from the EU affected domestic rights.

The High Court held that the strength of the underlying constitutional principles was such that the intention of Parliament in enacting the ECA must be considered to have been not to allow the Government to use the royal prerogative to undo or override EU-derived rights in domestic UK law. Indeed, the High Court held that it should be strongly inferred that Parliament intended to remove such power.

The High Court therefore concluded that there is no power for the Government to use the royal prerogative to exercise Article 50.

In addition, the High Court stressed that its judgment addressed a pure question of law, as to the process for exercise of Article 50, rather than a political issue on the merits of leaving the EU.

Appeal to the Supreme Court

On 8 November 2016, the Supreme Court granted the Government permission to appeal against the judgment of the High Court. Given the constitutional importance of this case and the Prime Minister’s announcement that Article 50 will be triggered by the end of March 2017, the appeal will be heard between 5-8 December 2016 by the Supreme Court and leapfrogging the Court of Appeal, which is the usual venue for High Court appeals. The judgment is expected in the New Year.

As the UK digests the decision to leave the European Union, we consider the potential impact Brexit will have on EU Intellectual Property Rights (IPR’s).

No Immediate Loss of Registered EU Intellectual Property Rights

The decision does not have an immediate impact on EU registered rights; EU Trade Marks (formerly Community Trade Marks) and Registered Community Designs remain valid and subsisting in the UK.

It is anticipated that transitional provisions will be introduced to provide proprietors with a mechanism to maintain or re-register their EU Trade Marks in the UK. At this time we do not know what form (if any) the transitional provisions will take or when they will be introduced.

This period of limbo is unlikely to be palatable for businesses. An alternative option to waiting for transitional provisions to be introduced is to re-file core EU Trade Marks in the UK under a separate national application. We can assist you with this. However, it will not be possible to re-file Registered Community Designs in the UK, unless filing within the 6 month priority period.

The IP Team at Walker Morris

We will continue to advise on and manage your trade mark and design portfolios in the UK, Europe, and any other foreign jurisdictions. Depending on the route the UK takes, the way we effect the filing of EU Trade Marks and Registered Community Designs may change.

For the time being, it is business as usual for all UK based Trade Mark Attorneys and we remain able to file EU Trade Marks and Registered Community Designs directly with the European Union Intellectual Property Office (EUIPO). However, given the outcome of the referendum, it is a sensible strategy for any new filing programmes which cover the EU to also cover the UK separately.

Once the UK ceases to be a member of the EU, subsequent applications for EU Trade Marks and Community Designs will only have effect in the remaining 27 Member States of the EU. It will be necessary to file separate applications at the UK Intellectual Property Office if UK rights are required.

If the UK negotiates to remain a member of the European Economic Area (EEA), the Registered Trade Mark Attorneys within the IP Team will continue to represent clients before the EUIPO, and will retain the ability to file EU Registered Rights directly.

If the UK does not remain in the EEA, we can continue to file EU Trade Marks via the International Trade Mark filing route, if appropriate. In addition, we have established relationships with attorneys throughout the EU, whom we would instruct and manage on your behalf as we already do for all other overseas territories.

We will continue to update you on developments which will impact on your IP rights. If you have any questions in the interim, please get in touch.

There is a cartoon currently doing the rounds on Facebook of a slightly jaded looking character muttering, ‘Here we go – suddenly everyone is an expert on politics’. Certainly, the EU referendum has both engaged and divided the UK population in a way seldom seen. In the current climate of political upheaval, emotions (and in some cases unacceptable bigotry) are running close to the surface. In extreme cases, the divisions may be manifested as racial or religious abuse. According to statistics from the National Police Chiefs’ Council there was a 57% increase in reported race related incidents between Thursday 23 June and Sunday 26 June 2016 compared with the same period four weeks earlier. So, if a ‘Brexit related’ argument, fracas or incident of discrimination should occur in the workplace how should an employer best respond?

We have prepared some pointers for managing staff in the current climate.

Deal immediately with any ‘murmurings’ of racial or religious harassment.

The Equality Act 2010 makes employers liable for the actions of their employees in relation to other staff even if the employer does not condone the conduct. An employer has a potential ‘statutory defence’ if it can show that it took all reasonable steps to prevent the discrimination from occurring but these steps must have been taken before the discrimination occurred. It is not possible to shut the stable door after the horse has bolted. The statutory defence is a relatively high hurdle to clear which requires more than just having an Equality or anti-discrimination policy or giving staff training on discrimination during induction. The employer must be able to show that it actively took steps (on an ongoing basis) to prevent discrimination from happening in the workplace. This might include ongoing diversity awareness training, engaging staff in anti-discrimination initiatives, internal communications advocating and celebrating diversity and monitoring and dealing with concerns raised in an effective and timely way.

Be aware that staff making negative or disparaging comments about ‘immigrants’ in the aftermath of the Brexit vote should sound real warning bells. Take action straight away if you become aware that this is going on. Turning a blind eye is a recipe for disaster. Yes, staff are entitled to freedom of speech but as soon as this infringes another employee’s right not to be discriminated against the risk of a legal claim arises. In any event, few would disagree that any level of bigotry in the workplace is simply not good for business.

Remember that employers can be liable for discrimination occurring outside of the workplace.

It is well established that employers can be held liable for acts of discrimination occurring outside the workplace at events connected with work such as office outings, organised social events or even, in some cases, between colleagues on social media. Whether an employer is liable will always be fact specific but the golden rule is to advise employees that the same standards of behaviour towards colleagues are expected at workplace events and in interactions on social media. It is worth checking that your Equality policies and procedures spell this out too. If a concern is raised, do not automatically dismiss it on the basis that it happened off-site. If there is a work connection (even if it seems a little tenuous) then the employer may potentially be on the hook.

Manage political disagreements effectively

Everyone is entitled to their opinion and there is no law against discussing politics at work (as long as the discussion does not amount to discrimination or harassment on grounds of a protected characteristic such as race, religious belief, sex, sexual orientation etc).

That said, if a political discussion becomes unduly heated, disruptive or has an impact on employees’ ability to do their work effectively and within required timescales then the employer is quite entitled to step in and request that the discussion stops and that people get on with their work. Never forget that the ‘employment bargain’ (i.e. a day’s work for a day’s pay) means that an employer is entitled to manage staff, make reasonable requests and apply a consequence if the employee does not comply. If an employee fails to comply with a reasonable request (e.g. stop arguing with a colleague and get on with their work) then the employer is entitled to treat it as a potential disciplinary matter. If the employee is on a formal warning and repeats the conduct then the employer is entitled to move to the next stage of the disciplinary process and so on (following the disciplinary procedure) until dismissal becomes a potentially fair outcome. It may seem obvious but it bears repeating!

If you feel that your managers lack confidence or are unsure of their footing when dealing with political (or other) disagreements between staff at work then now may be a good time to consider providing some refresher training in this area. Managers need to feel empowered and confident in managing the day to day ‘rough and tumble’ of the workplace. Such managers are significantly more effective, respected and are good for morale. They can save an organisation thousands by deftly heading off issues that, badly handled, might morph into messy ‘he said, she said’ type grievances or expensive and morale-damaging discrimination claims.

Stay on top of current immigration and ‘right to work’ rules

These are turbulent times and now, more than ever, it is important to stay up to date with immigration and right to work requirements. For example, ensure that all new recruits are subject to immigration checks (not just those with English as a second language, who are non-white or with foreign accents). Never make an assumption based on appearances about who may or may not have the right to work in the UK. Immigration rules are complex and provide fertile ground for scoring an own goal so make sure that your recruitment processes are 100% sound and non-discriminatory. Walker Morris has a business immigration team who can assist you with any queries you may have in this area.

If you would like further advice or would like to discuss the training that our team can provide please contact David Smedley or Andrew Rayment.

What will be the impact be on procurement law? The short answer is we don’t know as there will be decisions to be taken, in due course as exit negotiations and strategies evolve. However, for the time being the three sets of procurement Regulations; Public, Utilities and Concessions, that implement the EU Procurement Directives in England Wales and Northern Ireland, remain in force. Parallel Regulations apply in Scotland.

If the solution which emerges is that we are to be a member of the European Economic Area (EEA), then the UK will, have to continue to abide by EU procurement law, as do those countries that currently are in EFTA rather than the EU. So, the Regulations would stay.

If we totally go it alone then, in principle, the Regulations could be repealed. But that does not necessarily mean that public procurement would be unregulated. The United Kingdom, by virtue of EU membership, is also a signatory to the World Trade Organisation’s Agreement on Government Procurement (GPA). It is likely to want to retain this status so would be required to have legislation covering procedural fairness, transparency and domestic review. Even if the UK rejected the GPA membership, which seems unlikely as most of the countries we would want to trade with are members or observers, then most public bodies have long had internal rules to regulate their procurement to ensure value for money and propriety, so some type of regulation would likely exist. Indeed, many will stay with rules similar to those used now as they are familiar with them. In England, the Government has already legislated to regulate procurement not caught by the EU rules[1] so there is clearly precedent for further statute to create a UK regime. In Scotland Wales and Northern Ireland the respective governments may impose their own rules. Thus outside the European Union, the United Kingdom could have four, or more, different sets of rules which businesses supplying the public sector would need to take into account as well as case law emanating either from procurement legislation or judicial review.

The short answer is that it is too early to give a definitive answer to an assessment of the impact of a Brexit on the UK energy sector. The key issue is whether the UK chooses to remain within the Internal Energy Market (IEM) made up of the existing EU Member States and the additional States forming part of the European Economic Area (EEA). It is not clear, at this admittedly very early stage, what the preference among Leave politicians is; having campaigned on an “out” message, it may not be easy politically to “sell” an EEA deal to the public, given this option would continue to mean a contribution to the EU budget and adherence to EU laws (e.g. Competition, State aid) without any say in the making of those laws – although the alternatives are far from straightforward either. If the UK does remain part of the IEM, the effect of a Brexit may, in practice, not be too dramatic. If it does not, the landscape may change considerably.

Interconnectivity and participation in the EU project

In view of the increasing interconnectivity with the EU and the proactive approach of UK Governments in liberalising energy markets, a retreat from participation in the EU energy project seems most unlikely, notwithstanding the result on 23 June. In particular, the position of Ireland will require the UK’s participation in a common regulatory network and trading rules across the EU, given the reality of the interconnectors between the UK and Ireland and Ireland and other EU Member States.

The UK will need to negotiate an appropriate partnership arrangement with the EU. The UK will not have any say in the applicable rules, unless it can negotiate terms that enable it to remain a part of the institutions coordinating EU energy regulation, notably the Council of European Energy Regulators (CEER) and the Agency for the Cooperation of Energy Regulators (ACER).

Again, given the UK’s lead in pushing a liberalised energy policy, it would be a surprise if the Government did not go ahead with implementation of the EU’s Third Energy Package, designed to liberalise the gas and electricity markets, and which measures include the unbundling of Transmission System Operators (TSOs) from generation, production and supply interests, and enhanced transparency requirements. For the time being at least, it is safest to assume that this will become law.

Climate Change

The UK’s climate change goals are established at national rather than EU level, so those goals will not change with the departure from the UK from the EU. However, there will be matters to sort out, such as separating out the UK’s emissions reduction commitment from the EU target under the UN Framework Convention on Climate Change and the recent Paris Agreement so that the UK is allocated its 2030 decarbonisation own target.

Businesses will be watching to see whether the UK will continue to be able to participate in the EU Emissions Trading Scheme. If the UK remains in the EEA then it will be able to participate in the scheme. If not, then transitional arrangements will need to be finalised which will clearly be very important for companies holding a surplus of allowances. One possibility might be for the UK to attempt to establish its own carbon trading scheme.

The target of closing all coal-fired plants in the UK by 2025 is a UK initiative rather than an EU one and, as such, is unaffected by the vote to leave.

Renewables

The EU Renewable Energy Directive requires the UK to generate 15 per cent of its energy from renewable sources by 2020 and, should the UK leave the IEM, it will be released from this target, although it would be very surprising if the pursuit of renewables and low carbon energy solutions did not continue to form a central part of the Government’s energy policy.

Oil and gas

Oil and gas initiatives are primarily of an international rather than EU nature so it is likely that the oil and gas sectors will be less affected by Brexit than other parts of the energy sector. The EU largely applied the UK Continental Shelf (UKCS) system when legislating in this arena. In practice, the development to watch in this context may well prove to be calls for another referendum on Scottish independence, given most Scots favoured remaining in the EU, with the consequences that Scottish independence would have for North Sea oil operations. That though is thinking too far ahead – there is enough fall-out from one referendum to sort out first, without worrying about another!

As the country gets to grip with the vote Leave decision, an area of particular interest in Brexit discussions is the impact of the decision to Leave on choice of law and jurisdiction clauses in contracts.

Will a clause electing “English law” become uncertain following Brexit?

A key question is, having chosen English law as the governing law under the contract, whether the composition of English law will change now and therefore whether the law envisaged on entering into the contract will in fact be quite different once England has left the EU. If “English law” becomes significantly different from the “English law” in place at the time the contract was entered into, this could arguably have an impact on the enforceability of English governing law clauses, and lead to uncertainty as to the composition of the law chosen by the parties.

However most commentators consider that it is unlikely a Brexit will have a substantive impact on the enforceability of English governing law clauses. In the general context of commercial contracts, English contract law has been largely unaffected by the proliferation of EU law and key contractual issues such as offer, acceptance, consideration and implications of terms derive principally from English law. In most cases it is presumed that a choice of English law would be interpreted to mean English law as it stands from time to time, subject to any variations, including such variations as may arise from an EU exit. Businesses may nevertheless wish to check their contracts for provisions which they (or their counterparties) may seek to rely on where the UK’s departure from the EU affects the operation of the contract in a way which was not foreseen when the contractual arrangements were made (examples include material adverse change, force majeure and termination provisions).

As to the composition of conflict of law rules following a Brexit, the UK Government may decide to leave in place the Rome I rules [1] currently in force, but with the English courts as opposed to the Court of Justice of the European Union being the final arbiter of how these rules are applied. Alternatively, if Rome I were to no longer apply, the English courts may revert to applying the rules that were in force before the regulation was implemented – the Rome Convention – in relation to contractual obligations. The Rome Convention is very similar in respect of the parties’ choice of law (they both in effect enforce any choice of law made by contracting parties), so the law governing contractual obligations is unlikely to change materially.

Therefore, while there is still some uncertainty as to the exact composition of English law following the vote to leave the EU (and the effect on some specific legal obligations may be more unclear, e.g. financial services regulation and consumer protection), the English law that applies to commercial contracts between parties conducting business internationally is likely to be, for the most part, unaffected by uncertainty.

Are parties less likely to choose English law to govern contractual relationships?

The answer to this question will depend on how much of a factor the UK’s membership of the EU was to people who use and choose English law to govern their contracts. It appears that the general consensus is that English law’s attractiveness and the reasons why parties choose English law to govern their relationships had little to do with the UK’s EU membership.

English law, as one of the oldest and universally respected legal systems in the world, is commonly viewed as reliable, its principles having been developed alongside centuries of commercial activity and reflecting commercial common sense. It is not clear that a Brexit would undermine this, and there is no reason to think that English law will be any less flexible post-Brexit. In the run up to the referendum the risk of Brexit had not caused English law to stop being used for international contracts.

Will choice of jurisdiction clauses be affected?

Under EU law, the position is that the courts should recognise the parties’ election of a specific jurisdiction. If there is no election, then generally the country in which the opposing party is based should deal with the dispute. EU law also provides for the cross-border recognition of judgments from the courts of EU Member States within the EU.

Whatever is decided in relation to the composition of English law following Brexit it is likely that English courts will continue to respect provisions in contracts which confer jurisdiction on the English courts by agreement. Other EU Member States will decide how such clauses will be treated, which could give rise to uncertainty, depending on how jurisdiction clauses are viewed by the courts of different EU Member States.

However, while in some cases the courts of a counterparty domiciled in another EU Member State may be reluctant to cede jurisdiction to the English courts even if that is what the parties have agreed, it is generally felt that a similar regime will be adopted post-Brexit. Internationally there is unlikely to be a significant change in attitude to choice of jurisdiction clauses following Brexit.

What should clients and law firms consider when drafting new choice of law and jurisdiction clauses?

As stated above, it is generally agreed that clients should not be overly concerned about the effects of a Brexit on English choice of law and jurisdiction clauses in commercial contracts governed by English law. UK businesses should review their contracts to ensure they are governed by English law and contracts may also require updating where reference to European legislation or use of European concepts is made.

Walker Morris Commerical lawyers can provide further assistance and guidance.

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[1] The Rome Regulation on the law applicable to contractual obligations (EC No 593/2008). It determines the law governing contracts concluded from 17 December 2009 and applies to all EU Member States except Denmark. The Rome Convention applies to contracts concluded before that date.

Planning and development

On first glance, there appears little direct impact on planning and development from the UK exit. However, subsequent changes within the UK economy due to its altered position within global financial markets and the international business scene will be a key determinant on the level of development going forward. Any adverse economic reaction is likely to lessen construction, limit ongoing development, and reduce planning applications. Correspondingly, the loss of EU funding will certainly be felt in the delivery of major infrastructure projects (such as Crossrail and HS2) – unless subsequent exit negotiations ensure continued provision.

EU Directives incorporated into UK law relating to environmental assessments on development plans and major planning applications could now be abandoned. This may mean that Environmental Impact Assessments (as required for major development applications) and Strategic Environmental Assessments (needed for local and neighbourhood plans) will either no longer be required or – more likely – be subject to altered thresholds.

Dependent on how the Government exercises its ability to control immigration from EU Members States, it seems that predicting demographic change will be easier. The pressure for increased housing and development on green belt land may lessen, with housing forecasts generally becoming more predictable and less unreliable. For developers and builders, construction costs are likely to increase, with EU migrant labour becoming less available and not as heavily relied upon as previously.

Environmental law

The environmental sector will feel considerable impact from the leave vote, simply because approximately 50 per cent of our environmental law originates from Europe. This includes law on water, air quality, waste, chemicals, noise, energy efficiency and climate change.

There is considerable uncertainty regarding both how long it will take for the UK to withdraw and what type of relationship / agreement will be established going forward. An average of two years for the withdrawal seems likely, during which time the status quo on environmental matters is expected to continue. If a bespoke arrangement is implemented, there may be some continuing relationship and an ongoing requirement for the UK to apply much EU environmental law, but without having the ability to influence its development. Ultimately, it will be a case of ‘watch this space’. Whatever the nature of the settlement, there will need to be a comprehensive review of environmental law to establish (1) what regulation is derived from the EU and then (2) whether this should be repealed (in whole or part) or amended. This will be a substantial and extensive undertaking.

Climate change

The UK has its own carbon reduction schemes (the CRC Energy Efficiency Scheme and climate change levy, for example) and legally-binding emission reduction targets under the Climate Change Act 2008. It seems unlikely these will change.

The validity of the EU Emissions Trading System could be open to query, particularly in relation to required targets and existing allowances. However, there are already well-established national implementation and compensation measures in place linked to the EU scheme. Some form of emissions trading scheme will therefore no doubt continue, but whether this will reflect / be joined to the EU scheme in some way or entirely independent is unclear.

Waste management

EU legislation and policy has provided much in this area – including recycling targets, the principle of diversion from landfill, and the waste hierarchy concept. As the UK waste management sector is strong and well-established, it seems unlikely the UK Government will now dramatically alter waste management law. EU regulation has indeed been credited for improved standards and achievements in this sector.

However, looking further into the future, recycling and waste reduction targets could be altered. This raises the concern that long-term investment in and development of waste infrastructure will lessen.

Questions also arise around ongoing application of national waste law that was passed to implement EU legislation. For instance, the UK definition of ‘waste’ (such as in the Environmental Protection Act 1990) directly references the EU Directive – highlighting the potential legal complexities now faced.

One thing that is clear, is that UK courts will no longer be bound by rulings of the Court of Justice of the European Union (CJEU). This is likely to lead to challenges. The ‘waste’ definition has also been strongly shaped by a series of CJEU decisions, but is now open to fresh interpretation and consideration. Only where certain interpretations and approaches have become so imbedded in UK law will there be little impetus for change.

Habitats protection

The Habitats Directive and the Wild Birds Directive are the main EU environmental policy instruments. They have had an important influence over urban development in the UK, particularly linked to the requirement on Member States to designate Special Areas of Conservation and Special Protection Areas. Development likely to impact on these areas’ integrity previously faced considerable restrictions.

Protection of ‘worthy’ natural areas has a well-established pedigree in UK law. Hence it is foreseeable that these will continue to be specially-managed and protected. But the UK Government could now alter the level and type of protections, leading to less stringent habitat conservation regimes.

The Government will still need to take into account its international treaty obligations for habitat protection. Several important international environmental conventions are currently implemented via EU legislation. Consideration will have to be given to how obligations under and adherence with UN requirements is to be ensured. As well as habitat protection, this includes areas such as access to justice in environmental matters (Aarhus Convention); climate change (the Framework Convention, Kyoto Protocol and Paris Agreement); and protection of endangered species.

REACH regulations

In comparison to the case with EU Directives, environmental Regulations were directly applicable in the UK and did not need implementing legislation. For example, the REACH Regulations governing chemical control and handling. This means a regulatory ‘gap’ will now arise and such regulation is lost.

The option of not legislating afresh in this area may seem tempting, lessening the previously burdensome restrictions and bringing scope for simplification. However, operators and businesses continuing to interact with EU countries would still be expected to comply with existing EU regimes to ensure access to the EU market.

EU standards have also ensured considerable environmental and safety protection to date, which it would be desirable to maintain – both from a business / reputational and public-protection perspective.

Depending on the settlement arrangement, the UK may now adopt its own, independent regulatory approach here. Yet this could lead to different compliance obligations and further increase the regulatory burden. For example, companies manufacturing, importing or using chemicals in both the UK and the EU would need to comply with REACH and the UK’s REACH-equivalent.

Another difficulty in relation to Regulations, is that enforcement and penalties are largely under the remit of national legislation. This will need to be revoked. Otherwise, there could be the unusual situation whereby a company is found guilty of the offence of failing to comply with REACH under the UK’s enforcement legislation, despite the fact that REACH is theoretically no longer applicable.

Contaminated land

Some environmental legislation is purely catered for under domestic law and so will probably feel no impact. This includes the Environmental Protection Act 1990 and contaminated land regime.

If nothing else, the next year or two look to be full of uncertainty from an environmental perspective due to the intertwined nature of the UK and EU legal regimes. There are opportunities for reappraisal and possible reduction of environmental legislation. However, a different regulatory approach could bring fresh and different challenges. The UK is also likely to have less influence on international laws and agreements going forward. Reviewing and responding appropriately to whatever situation arises is likely to incur considerable time, monetary and emotional resources.

For UK firms with a purely UK focus, it is unlikely that the results of the EU referendum will have much of an impact. The extent to which that can be said of firms carrying on business in EU Member States will depend on the post Brexit model that the UK Government decides to adopt. At the moment we do not know what model that will be so, for now, firms have to wait and see, a frustrating and worrying position, but matters will eventually start to become clearer than they are today. One point that is worth bearing in mind is that the financial services is a sector that is highly regulated the world over – not just in the EU and UK. Whilst some regulations may fall away or change, we can be pretty confident that, post Brexit, there will still be a good deal of regulation to contend with.

Financial services

Under the current regime, a UK investment firm authorised under an EU directive has a ‘passporting’ right to carry on business in any EU Member State, irrespective of whether or not it has a branch in that state, so long as it has a base in the UK. US and Swiss banks are also able to make use of the passporting right from their branches or subsidiaries in London to carry on business in the EU.

Should the UK leave the European Economic Area (EEA), the passporting right will be lost unless some sort of special arrangement can be negotiated. There are political sensitivities around whether the UK stays in the EEA or not, but the importance of the financial services sector to the UK economy and the importance of the passporting right to the financial sector will weigh heavily in the argument that is to come.

The loss of the passporting right would leave UK firms with restricted access only. Firms would have to consider relocating part of their UK operations to the EU or setting up EU subsidiaries.

UK amendments to the existing EU legislation which forms the basis of the UK’s financial services regime would be probable; a complete rewrite would not be. Some EU-based legislation of recent vintage, MiFID II for example, which has been/is being costly to implement, would almost certainly remain, at least in the short to medium term. In any event, if UK firms want to continue to do business with the EU, they will need to comply with EU law (although the UK Government will in future have no say in shaping these). In due course, one would expect UK law and EU law to begin to diverge and compliance managers of firms that trade in Europe will need to be familiar with parallel regimes. But that is for the future.

Existing contracts should be reviewed to see whether they contain obligations to comply with EU law. Compliance with any such provision may become impracticable when UK leaves.

Capital markets

The UK has already implemented the Prospectus Directive and the Transparency Directive and the Market Abuse Regulation (the MAR) will become law on 3 July this year. If the UK Government wants the London Stock Exchange to maintain its reputation as a major international trading platform it is likely that the key provisions of these directives and the MAR will have to remain a part of English law. As a Regulation, the MAR will cease to have effect upon Brexit so legislation would be required for its provisions to continue to have effect. Historically, the UK has exceeded EU requirements in its insider dealing legislation, in order to ensure investor confidence, so it seems inconceivable that the MAR will not be adopted in substantially similar form to the form it currently bears.

An EU exit may result in the loss, in whole or in part, of the UK’s ability to participate in mutual recognition between Member States with regard to prospectuses and announcements. Where an issuer is based outside the EU, Member States have the power to approve a non-EU prospectus if it is drawn up in accordance with international standards that are equivalent to the requirements set out in the Prospectus Directive. The Commission has the power to decide whether a third-country’s laws and practices (in this case, the UK would be the third country) satisfy the equivalence test. The UK will no doubt seek to convince the Commission that it satisfies this test.

Transfers of data outside the EEA

The starting point when considering the implications for data protection of the UK decision to vote to leave the EU is whether or not the UK will be a member of the European Economic Area (EEA). This may not become apparent for some time and – for the moment – the advice cannot be anything other than to “wait and see”.

Directive 95/46/EC on the protection of individuals with regard to the processing of personal data and on the free movement of such data, implemented in the UK by the Data Protection Act 1998, prohibits transfers of personal data to countries outside the EEA unless they ensure an “adequate level of protection” to personal data. If the UK failed to meet this “adequate protection” threshold, alternative arrangements, none of which are straightforward and which are considered below, would need to be implemented before businesses based in the remaining 27 EU Member States could transfer personal data to their UK counterparts. One would expect the UK to meet the threshold but there is no guarantee that it would do so – the Commission has criticised the UK Government in the past for failure to implement the Directive in full.

Additionally, and critically, the EU General Data Protection Regulation will come into force in the EU on 25 May 2018. The Regulation substantially builds on the Directive and if the UK chooses not to adopt the Regulation in its own laws but to continue with the existing regime under the Data Protection Act 1998, it will increase the possibility that the UK will, from the European perspective, no longer be a “safe third country” in terms of the transmission of personal data. Indeed the possibility becomes more of a probability.

There are ways around the problem if the UK is considered not to be “safe”:

the adoption of binding corporate rules. These allow multinationals and other international organisations and groups to transfer personal data across borders in compliance with EU data protection law. To date, however, take-up has been very modest largely because they are cumbersome and time-consuming to implement

the use of “model contracts”. These too have not been popular, as they add an additional administrative burden to data transfers and cannot be negotiated

a EU-UK privacy shield, akin to the EU-US privacy shield (the proposed replacement for the Safe Harbor which was declared invalid by the Court of Justice of the European Union last year). However, as is clear from our recent article on the subject, establishing a privacy shield is also a difficult task and the EU-US privacy shield has yet to be finalised.

In time, in the light of a decision not to remain in the EU, UK businesses operating in the EU will need to review internal data transfers, online operations and other activities that are impacted by privacy laws. Conversely, businesses involved in data transfers to and from non-EU jurisdictions only, notably the US, may welcome a more relaxed regime.

A lighter touch regime?

Outside the EU, the UK will have the option of adopting a lighter touch data protection regime than the existing one, a move that many businesses would watch with interest, as the data protection burden can be a trying one. The decision not to adopt the General Data Protection Regulation (or parts of it) could be a part of this.

There are three major caveats to this, however. First, UK businesses trading in the EU will in any event be subject to the Regulation, where they offer goods or services to EU citizens or monitor their behaviour (e.g. for online marketing). Secondly, notwithstanding Brexit, the Regulation will come into effect before the UK is able to leave the EU (as noted in our introductory article, this is likely to take two years) and reverting back to a different regime may prove extremely confusing for businesses, which have only just got to grips with their compliance obligations under the Regulation. Thirdly, the point, already mentioned, that the approach taken by the Government to the Regulation is inextricably linked to the issues identified above regarding cross-border data transfers and, if consideration is given to the huge volumes of daily data flows between London and other European financial centres for example, the odds would be on a data protection regime that is close to that of other EU Member States. Having said that, the odds were on a Remain victory!

On 19 April 2016, the ICO issued a statement on the implications of Brexit, stating that:

“The UK will continue to need clear and effective data protection law, whether or not the country remains part of the EU.

The UK has a history of providing legal protection to consumers around their personal data. Our data protection laws precede EU legislation by more than a decade, and go beyond the current requirements set out by the EU, for instance with the power given to the ICO to issue fines. Having clear laws with safeguards in place is more important than ever given the growing digital economy, and is also central to the sharing of data that international trade relies on.”

This is a clear indication that the data protection laws are unlikely to be relaxed.

Introduction and the alternatives to EU Membership

This note examines the impact of the decision to vote for Brexit on competition law.

The effect on Brexit will depend on how the UK defines its post-Brexit relationship with the EU. The most commonly proposed models for the UK’s post-Brexit relationship with the EU are:

Apply to join the European Economic Area (EEA)– the Norwegian option: The UK might apply to join the EEA (which includes the 28 Member States plus Iceland, Liechtenstein and Norway) to participate in the internal market without the obligation to participate in EU policies on agriculture, foreign policy etc. To do so, the UK would also have to join the European Free Trade Association (EFTA). Under this model, all the single market rules (including competition law) would still apply after a Brexit.

Apply to join the EFTA – the Swiss option: Switzerland is a member of the EFTA, but not the EEA. Accordingly, the UK might join the EFTA but not remain within the EEA, and negotiate a series of bilateral agreements with the EU to secure (some) single market access. Switzerland has negotiated about 100 bilateral agreements with the EU, although none of these concern financial or other services. In areas covered by bilateral agreements, Switzerland has had to incorporate EU law and make a financial contribution to the EU. However, the EU is unhappy with the Swiss model, partly as a result of recent Swiss restrictions on freedom of movement, and is trying to negotiate a new stricter agreement as a quid pro quo for Swiss access to the single market. Consequently, the current Swiss model may not be available to the UK.

Total exit from the EU and EU single market: The UK could either rely on the rules of the World Trade Organisation to continue trading with the EU or seek to negotiate a new free trade agreement (similar to that recently negotiated between the EU and Canada).

How a Brexit could affect competition law

For the purposes of this note, we are assuming that the UK pursues a Brexit option which gives it significant freedom from existing EU competition rules. On that basis, a Brexit could affect competition law in the following ways:

Merger control: The EU Merger Regulation (EUMR) introduced a so-called one-stop-shop regime, under which a transaction that qualifies under the EUMR is no longer subject to the merger control regime(s) of the relevant Member State(s) (subject to some exceptions). If the UK is no longer a Member State, the EUMR and UK merger control regimes could run in parallel. A transaction that qualifies under the EUMR may be subject in addition to UK merger control post-Brexit (provided the jurisdictional threshold for UK merger control is met). This could add a burden and cost for businesses, in particular in view of the UK merger fee (ranging from £40,000 to £160,000 depending on the UK turnover of the enterprises acquired) and the longer time frames for UK merger control clearance.

Competition compliance: One of the main consequences of a Brexit is that the UK Competition and Markets Authority (CMA) and UK courts would no longer be bound by EU competition jurisprudence. Over time, this may result in increasing divergence in the application of UK and EU competition rules. In turn, this may increase the cost of competition law compliance for companies active in both the UK and EU markets.

Competition investigations: Currently, the European Commission (EC) has jurisdiction to investigate potential competition law infringements that have an impact in the EU or EEA, and if it does so, the CMA can not investigate the matter. Following a Brexit, companies could face parallel investigations. The EC would investigate the conduct of a business affecting trade within the EU, while the CMA investigates conducting affecting trade within the UK. This would lead to separate fines and additional costs for the parties, as well as uncertainty as to the outcome (the EC and CMA could produce inconsistent decisions).

Legal privilege: At present, advice given by EEA qualified lawyers is privileged for the purpose of EU competition law. After a Brexit, advice to clients from external UK-qualified lawyers (who are not qualified elsewhere in the EEA) will not be protected by privilege and can be read/copied by the EC when investigating companies.

State aid: The state aid rules prohibit Member States from distorting competition by granting aid to specific businesses. There is no equivalent provision in UK competition law. The obligations only apply to Member States, so the UK outside the EU would be able (subject to World Trade Organisation rules) to provide aid to businesses in the UK without fear of EU action. Conversely, the UK would have no scope to oppose the grant of unlawful aid by other Member States.

Private enforcement: Follow-on damages actions for breach of competition law, in which the claimant relies on an existing infringement decision, are increasingly common in the UK. Following a Brexit, EU infringement decisions will cease to have a binding effect on the UK courts. This may affect the ability of UK claimants to bring follow-on damages in the UK in reliance of an EU infringement decision, although follow-on claims will still be possible following a UK infringement decision.

Single market: The EU competition rules are designed to remove, as far as possible, national barriers to cross-border trade (e.g. exclusive territorial protection and restrictions on purchasing parallel traded products). Following a Brexit, UK businesses may have more scope to ring-fence the UK market from EU competitors through contractual provisions and commercial practices.

Competition policy: The CMA is an active member of international bodies such as the ICN and the OECD and is committed to cooperation with competition agencies around the world. Therefore, after a Brexit the CMA would be likely to continue to cooperate with DG Competition and the competition authorities of EU Member States in enforcing the UK competition rules. However, that cooperation would not be as close as that which currently takes place within the ECN, from which the UK will be excluded. Divergent enforcement policies and priorities could well emerge as the UK fashions its own competition policy outside the EU structure and processes.

Conclusion

To conclude, the impact of a Brexit will depend on the terms of any final agreement reached by the UK Government with the EU. If the UK were to join the EEA and have a status similar to Norway, it is likely that UK businesses would be more affected by EU competition law decisions, but without the UK being involved in the institutional process leading to these decisions being adopted. One area where the UK is likely to enjoy greater freedom is in the area of state aid control. But even this might be limited under the terms of an eventual agreement between the UK and EU.

In common with other subject matters considered in this newsletter, the short answer is that we don’t know yet what the impact of the UK decision to leave the EU will be. Withdrawal does not take effect immediately and there will now follow a period of time – the EU Treaty stipulates two years though this may be extended – during which the post-Brexit trading terms will be negotiated.

EU Trade Marks and Registered Community Designs

The UK Intellectual Property Office (UK IPO) administers national intellectual property rights but many UK businesses seek protection at the EU level, notably through the EU Trade Mark (EUTM) (formerly known as the Community Trade Mark) and the Registered Community Design (RCD). An EU registration is a cost-effective means of obtaining protection both in the UK and wider EU. Once the UK leaves the EU, EUTMs and RCDs will cease to have effect in the UK. Transitional conversion provisions will be needed for existing EUTMs and RCDs to cover the UK. Assuming that does happen, thought will need to be given to how those “successor rights”, for want of a better phrase, impact existing agreements, such as licences or security documents.

Applicants will need to decide whether to pursue separate applications in the UK and the EU and, where dual applications are pursued, there will be an increase in costs compared to what applicants are currently paying. We may also see UK-only applications start to take longer as the UK IPO finds itself suddenly responsible for the registration of many more marks than is currently the case.

There is a related issue around proof of use. Where the use of an EU trade mark is primarily in the UK, and the UK no longer forms part of the EU, the validity of the EU registration may be called into question. It is to be hoped that this will be addressed in legislation to be finalised before the UK finally leaves.

In similar vein, UK-based reputation/goodwill (where the reputation/goodwill in the EU is negligible) or a UK trade mark may not be able to prevent the registration of a competing EUTM.

Another consequence of Brexit for trade mark proprietors will be that it will not be possible to obtain an EU-wide trade mark injunction from a UK court. Proprietors will have to bring proceedings in an EU member state to get an injunction that covers the EU.

Over time, we can expect to see UK trade mark and design law diverge from their EU counterparts.

Existing UK registered rights – for trade marks, designs and patents – will not be affected by Brexit as these are UK rights only.

Copyright

Copyright is less obviously impacted by Brexit. There is no system of copyright registration in the UK or EU and copyright laws are national laws, albeit often implementing EU directives, notably the Information Society Directive [1]. At the moment there is a substantial degree of harmonisation of copyright laws among EU Member States – although the European Commission would prefer to see more. In time though, we can expect to see UK copyright law tread an increasingly divergent path.

Patents

Patents too will be less affected by Brexit than trade marks. This is because, contrary to what one might think at first glance, the European Patent Office (EPO) is not in fact an EU institution but rather originates from the European Patent Convention. The EPO creates a single patent grant procedure such that once a patent is granted by the EPO it is effectively converted into a bundle of national patents. A patent granted by the EPO that is effective in the UK now will therefore continue to be effective post Brexit. The same cannot be said of the EU Unitary Patent (which provides for an EU-wide patent), something of an irony given how long it has taken for the Unitary Patent to come to fruition and given how close it now actually is. The Unitary Patent would not cover the UK (although UK inventors would still be able to apply for one) and, from the European perspective, the whole project loses some of its lustre if the UK is not covered,

Licensing agreements

Licensing agreements should be reviewed for an assessment of the consequence of the UK leaving the EU. For example, is there a defined term “EU”, which could mean the loss of exclusivity in the UK for a licensee of intellectual property, should the UK leave (the same consideration would apply to a distributorship agreement and other types of commercial contract)?

Implications of Brexit on employment law and HR

The referendum is decided and the UK is to leave the EU. One thing that both sides of the In/Out debate agree on is that there will now be a huge period of uncertainty about what happens next. So, do we need to ‘do anything’ HR-wise to prepare for leaving the EU? Will day-to-day life in the workplace carry on much as before (with a few less political debates at the water cooler)? One thing’s for sure, it’s all a bit unprecedented. To assist employers, our employment team have prepared some key points to note for employers in the immediate aftermath of the Brexit vote.

Nothing will happen overnight

Legally the result of the referendum is ‘advisory’ rather than mandatory. The UK will remain a member of the EU until an exit is negotiated, which will be a complex political process. The UK has two years to negotiate its departure after triggering the exit provisions of the Lisbon treaty. So really, anything could happen. Some commentators have noted the possibility that the negotiation process may lead to the UK not actually exiting after all (although query whether that would require another referendum). It will be a case of ‘watch this space’ for a rather long time.

Action: For most employers there is unlikely to be a business case to take any immediate action as a result of the referendum outcome other than to stay up to date with developments and keep an eye on the horizon (more on this below).

UK employment laws may be modified or repealed

Jeremy Corbyn predicts a ‘bonfire of workers’ rights’. Other commentators predict very little practical change. Our view is that there will, over time, be some deregulatory changes. Fundamental ‘vanilla’ employment protection as we know it, however, is likely to remain largely untouched. We are not about to become the US with firing at will and no right to claim unfair dismissal. Nothing will happen fast as the political and trade machinations must first happen as a precursor to any employment law changes.

As we know, much of UK employment law derives from Europe (equality laws, protection on transfer of undertakings, pregnancy and maternity protection, working time provisions, fixed-term, part-time and agency worker protections to name but a few). Many of these rights are embedded into British culture – for example, could we imagine the right to paid holiday being axed? Some of the rights, however, may well be more vulnerable if the government pursues its drive towards deregulation. Agency worker protection, rights to collective information and consultation, health and safety protection are likely to be in the immediate firing line. Some legal commentators believe that we may see caps on discrimination compensation (something that would have been impossible prior to Brexit as it would breach the principle that domestic law must not make it impossible to exercise rights conferred by EU law). The bottom line is that UK employment laws cannot be repealed overnight. Any significant changes would normally follow a period of public consultation; if (and when) things do change employers will have a reasonable amount of time to prepare.

Action: Stay up to date with proposed changes as they are announced. You may wish to subscribe to our employment newsletter please see our ‘Sign up to our publications’ at the bottom of this page and bookmark our employment legislation tracker. We will also be covering any changes on the horizon at our next Breakfast Briefing on 6 October 2016 register with kiri.richardson@walkermorris.co.uk.

Some corporates may relocate HQs and reduce UK headcount

This particular consequence of an ‘Out’ victory was widely publicised by the Remain campaign. The automotive and financial services sectors, in particular, may well scale back UK operations and other multinationals may take similar action. If this ‘scaling back’ comes to pass, suppliers and customers of such businesses and their workforces will be affected by the inevitable and much talked about ‘ripple effect’. Whilst this uncertainty may be enough in itself to have an impact, much will depend on forthcoming trade negotiations.

Action: If your organisation could be affected either directly or indirectly by suppliers or customers scaling back operations in the UK it would be wise to carry out an initial impact assessment looking at potential worst/best case scenarios. Health-check the organisation’s collective redundancy procedures if the prospect of headcount reduction or restructuring is on the horizon. Taking time to plan a route-map for this could save huge amounts of time and expense not least because it reduces the risk of potential tribunal claims.

Business uncertainty may affect hiring and investment decisions

A recent report found that growth in permanent hires has slowed as companies take a ‘wait and see’ approach and that demand for temporary staff and interims is growing at a much sharper rate.

Action: How the Brexit vote impacts each organisation will differ and it will be up to each employer to decide how best to manage the impact. Wise employers will obviously base their hiring and investment decisions on what is best for their organisation rather than reported trends or media scaremongering.

Immigration rules will be tightened

Inevitably, there will be significant changes to immigration rules and requirements over the next few years as Brexit plays out. For example, it may be that we see the introduction of an Australian/Canadian style points system to facilitate the employment of overseas workers with ‘in-demand skills’. New trade deals are likely to come with strings attached in terms of worker movement. This is one area where nothing less than a crystal ball is required!

Action: Affected employers (those hiring from overseas or whose workers move around within the EU) will need to stay bang up to date with immigration changes. If you are affected, Walker Morris have a business immigration team who can assist with this and act as a ‘first alert’.

If you have any questions or would like to discuss anything in this article please contact David Smedley or Andrew Rayment.

We know that the people of the UK voted to leave the EU on 23 June. What is less clear is what comes next.

The future of the UK/EU relationship

Brexit will not occur immediately. The exit process is triggered by a notice issued by the UK Government under Article 50 of the Treaty on the European Union. In his resignation speech, David Cameron, said that it would be for the new Prime Minister to carry out negotiations with the EU and invoke Article 50. Service of the Article 50 notice triggers the start of a two-year timetable for the UK to secede from the EU during which time the UK and EU will negotiate the terms of the withdrawal agreement. The term can be extended provided all the other remaining Members States agree but, if there is no agreement to extend and no agreement has been reached, the UK will leave the EU at the end of the two-year period. (During the referendum the “Remain” camp argued that negotiations could take at least 10 years, as the trade negotiations between Canada and the UK did).

At the heart of the early discussions will be whether the UK should be a member of the European Economic Area (EEA) and/or the European Free Trade Area (EFTA). Three of the existing EFTA states – Norway, Iceland, Liechtenstein – joined with the EU to form the EEA which constitutes the internal market. The EEA Agreement includes legislation covering the four freedoms (of movement of goods, services, persons and capital) and co-operation in some areas (e.g. the environment, consumer protection) but not in others (e.g. common trade policy, foreign and security policy).

The options facing the UK are to:

become a member of the EEA – what may be termed the “Norway” option. This would allow the UK to retain access to the single market and EU businesses to have access to the UK. However, the UK would have to contribute to the EU budget and maintain and adopt EU regulations and standards in order to take advantage of the single market, whilst having no formal input in the formulation of those standards. Additionally, the UK would have to accept free movement of persons, freedom to provide services and freedom of establishment from other EEA states. Given the argument in the last month of the referendum was largely around the immigration issue, this may prove politically untenable.

negotiate a series of bilateral agreements with the EU – the “Swiss” option, giving access to the single market on a sector-by-sector basis. The UK would not have full access to the single market as access is given on a case by case basis. Switzerland is not part of the EEA but is part of the EFTA. Switzerland has less access than Norway does to the single market. The extent to which Switzerland must accept free movement of persons from the EU has proven to be a sticking point in negotiations between the two.

negotiate a new “Free Trade Agreement” with the EU – as the Canadians have done. Similar to the Swiss model (above) but involving a single comprehensive agreement with the EU rather than multiple agreements on a sector-by-sector basis. This will mean fewer (though still some) tariffs and an ability to compete in the supply of goods and services with EU competitors within the EU. However, the Canadian experience showed that the negotiations can take years – although there is an argument that our negotiations would be swifter as we are starting from a common starting point – and that the final agreement still omits a number of very important services from its scope

join a customs union – as the EU and Turkey have done. Turkey has a customs agreement with the EU, which is limited to trade and industrial products and certain agricultural products and does not apply to services. The benefit would be that goods could be exported to the EU without the need to comply with tariffs or customs restrictions but there would likely be an obligation to comply with minimum EU regulatory standards and the agreement would be unlikely to cover every sector – in particular, the UK’s leading service industries, notably financial services, may very well not be covered

rely on its existing World Trade Organisation (WTO) membership. This does not involve independently negotiated agreements with the EU or individual EU states. The UK would have control over its trade policy and borders within existing WTO rules. All UK exports to the EU would be subject to import tariffs and EU technical standards (e.g. regarding product safety,) and/or restrictions to the extent permitted under the WTO rules…

The short answer at the moment is that we simply do not know to what extent UK businesses trading with countries within the EU will be subject to customs, tariffs or future EU regulatory standards. It is very probable though that the end result will disappoint the most ardent “Brexiteers” and that UK businesses, if they want to continue to trade with our erstwhile EU partners, will find that they have rather a lot of EU regulations to contend with.

As well as negotiating its future relationship with the EU, the UK Government will have to renegotiate agreements with third countries, where these have been entered into with the EU rather than individual Member States.

The application of EU law more generally

One thing that is clear is that the EU Treaties will no longer apply to the UK after the UK leaves the EU and that any provisions of the Treaties that the UK wants to retain will require new legislation. The same is true of EU Regulations, as these are directly applicable and do not need national legislation to be implemented into domestic law. A topical example is the Market Abuse Regulation (which materially rewrites the existing law on market abuse – e.g. insider dealing and the disclosure of information to the market, which comes into effect on 3 July 2016). This legislation requires no implementing legislation in the UK, though it will be policed by the Financial Conduct Authority. If no action is taken between now and the date the UK leaves the EU, such as a decision to adopt the Regulation, the Market Abuse Regulation would simply fall away on that date. The creation of voids like this in UK legislation will need to addressed before we leave. Some Regulations may be considered to be unnecessary but most will not be. To take the market abuse example again, if the UK wishes to remain an attractive destination for foreign investors, it will need to be able to compete with EU Member States, which will mean having a regime that is every bit as rigorous in stamping out abusive practices as that envisaged under the Market Abuse Regulation.

The same is not true of EU Directives, as these are implemented into national law by domestic legislation.

The Court of Justice of the European Union (CJEU) will no longer be part of the UK judicature. To the extent, however, that its rulings have been reflected in the decisions of the UK courts, those rulings will continue to apply. In time, as the UK courts are no longer obliged to apply CJEU rulings, a divergence may begin to emerge between the decision of the UK courts and the CJEU. This could become problematic where the UK continues to apply EU legislation as businesses may find that a course of action is approved in Strasbourg but not in London. But that is for the future.

In practical terms, if the UK wants to continue to trade with the EU, it will have little choice other than to comply with some EU laws. Examples where existing EU legislation is likely to continue to be relevant are competition law, financial services law, product liability, consumer protection, environment, food safety and data protection, some of which are considered further in this newsletter.

What should I do now?

The most important message for business is that nothing will happen overnight. There will be time to develop and implement strategies as the nature of the UK’s relationship with the EU and with EU law emerges over the coming months, and maybe years. We will keep you updated with relevant developments.